Apple: Watching What Really Matters

22 Jul 2015 | Author: | No comments yet »

Apple Plunges On Light iPhone Sales, Weak Outlook.

Apple sure looks like it’s doing pretty well. BENGALURU/SAN FRANCISCO (Reuters) – Apple Inc shares slumped nearly 7 percent in after-hours trading as its fourth-quarter revenue forecast fell short of estimates and it missed some targets for iPhone sales.

Apple beat analysts’ expectations for its second quarter on Tuesday but its shares dived in after-hours stock trading, as investors seemed disappointed by the results and a lack of fireworks over Apple Watch sales figures, which the company was not expected to break out (and didn’t).Apple stock tumbled 8% in after hours trading Tuesday (July 21) after the company reported it sold fewer iPhones than expected in the past three months and offered a weak outlook for the current quarter.Apple revenues for the month ending June 2015 rose 33% to $49.6 billion while earnings were up 45% to $1.85 a share — beating the Thomson Reuters I/B/E/S consensus by four cents a share. Apple Chief Financial Officer Luca Maestri said in an interview the results in China were “spectacular” during the quarter and noted plans to open 40 stores there over the next 12 months.

The company even surpassed its own guidance for the quarter. “We’re proud to report record earnings,” Apple CEO Tim Cook said on the earnings call. “Revenue is up 33 percent, the fastest growth rate in 3 years, and earnings per share are up 45 percent.” But that still wasn’t good enough for Wall Street. The good news for iPhones was that the average selling price of $660 was above expectations suggesting that sales were better “for the larger 6 Plus model which is particularly popular in China,” according to FT. Apple sold 47.5 million iPhones last quarter, falling short of analyst predictions of sales between 48 and 50 million units, compared to 35.2 million last year. He noted that in the nine weeks since its launch in late April, the device has sold better than either iPhones or iPads over a similar period after their launch.

The company forecast revenue of $49 billion to $51 billion in its fiscal fourth quarter, which ends in September, short of the average estimate for $51.1 billion. Typically, iPhone sales do slow down in the third quarter as shoppers hold off in anticipation of Apple’s next smartphone iteration, which it normally starts selling in the fall.

I was guessing that sales of the wearable had to account for the majority of the growth in a collection of products that had been seeing quarter-over-quarter declines. The company gave no solid sales figures although chief executive Tim Cook suggested it was already a $1bn business and told analysts the possibilities for the watch were “enormous”. As he said, “We had an amazing quarter, with iPhone revenue up 59 per cent over last year, strong sales of Mac, all-time record revenue from services, driven by the App Store, and a great start for Apple Watch.

Any indication of slowing demand for iPhones could spark concern that Apple is going to have a hard time selling more smartphones in the final months of the year, after the September debut of the latest version fuelled record profits. Colin Gillis, an analyst for BGC Partners, said the results highlighted the vulnerability of Apple’s dependence on the iPhone and the Chinese market’s growing importance to the company. “Where are you going to find growth in the world?” he said. “You’ve done an amazing job sucking all the smartphone profits into your balance sheet, but smartphone sales are slowing. According to the New York Times, “Before the report, analysts had estimated that if revenue in the category exceeded $5 billion, it would be a sign that Apple had sold at least five million watches.” By that measure, the Apple Watch could have been far less popular than they had expected.

Apple had a troubled day, with its App Store, Apple Music, iTunes Store and some other services suffering disruption for more than three hours before results were released. But, as expected, it didn’t break out the sales of its newest product (the watch) into a separate category for the first report since its 24 April launch, instead lumping them into the “other” section of the filing it created last quarter. IPad sales continued to suffer, with tablet shipments falling 18 per cent to 10.9 million, marking the sixth straight quarter of declines. – Bloomberg Apple comfortably beat Wall Street’s expectations: its earnings were four cents better than predicted, which still wasn’t enough to stave off investor disappointment.

The Surface is an excellent convertible device and is experiencing torrid 117% quarter-over-quarter growth, but has taken years to finally get near the billion-dollar-a-quarter territory. Apple Watch’s out-of-the gate numbers are somewhat reminiscent of the first iPhone, which sold 1.1 million units in its first quarter in 2007 (ah, the days when Apple reported units sales for everything). Apple’s results came as Microsoft reported a $3.2bn quarterly net loss, attributable largely to charges related to its Nokia phone business and job cuts, and to weak demand for its Windows operating system. That got me thinking: If Apple sold 3 million Apple Watches (a number on the high end of my expectations, but at least inching closer to some analysts’ outlandish estimates), it would account for $1.5 billion of the $2.6 billion quarterly revenue number.

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